Pennant

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Pennant

  • To be considered a continuation pattern there must be evidence of a prior trend. Flags/Pennants require evidence of a sharp advance or decline on heavy volume. These moves usually occur on heavy volume and can contain gaps. This move usually represents the first leg of a significant advance or decline and the flag/pennant is merely a pause.
  • The flagpole is the distance from the first resistance or support break to the high or low of the flag/pennant. The sharp advance (or decline) that forms the flagpole should break a trend line or resistance/support level. A line extending up from this break to the high of the flag/pennant forms the flagpole
  • A pennant is a small symmetrical triangle that begins wide and converges as the pattern matures (like a cone). The slope is usually neutral. Sometimes there will not be specific reaction highs and lows from which to draw the trend lines and the price action should just be contained within the converging trend lines.
  • These are short term patterns that can last from 1 to 4 weeks ideally. But duration is subjective is and is debatable.
  • For a bullish flag or pennant, a break above resistance signals that the previous advance has resumed. For a bearish flag or pennant, a break below support signals that the previous decline has resumed.
  • Volumes should be heavy during the advance/decline that forms the flagpole. An expansion of volume on break of resistance/support lends credence to the formation.
  • The length of flagpole can be applied to resistance/support break to estimate the target.

Chart

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